Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on October 26 - November 1, 2015.

 

CLIQ Energy Bhd has a lot riding on its proposed RM210 million cash call.

A double whammy of low crude oil prices and a weak ringgit has put the special purpose acquisition company (SPAC) between a rock and a hard place as it seeks to secure a qualifying asset (QA) within its three-year window that closes in April next year.

With the local currency having plummeted some 28% against the US dollar over the last year, CLIQ’s ringgit-denominated coffers have shrunk substantially, resulting in a shortfall in funds required for a proposed QA.

In March this year, CLIQ entered into a conditional sale and purchase agreement with Phystech Firm LLP to purchase a 51% controlling stake in a special purpose vehicle (SPV) for US$117.3 million.

Under the deal, Phystech will inject two of its oilfield blocks in the northern Kharazhanbas region into the SPV and list it on the Kazakhstan Stock Exchange.

The price works out to RM496 million at today’s 4.225 exchange rate. The initial proposal was based on an exchange rate of 3.69 against the US dollar.

CLIQ raised net proceeds of RM364 million from its initial public offering (IPO) priced at 75 sen per share. Of these proceeds, 90% is kept in a trust account for the purchase of a QA.

The company’s latest annual report shows that the funds in its trust account amounted to RM345.78 million, or 73 sen per share, as at March 31, pointing to an estimated shortfall of RM150 million.

So, it is not hard to fathom why CLIQ is asking its shareholders for more money. However, a cash call would really test the confidence and financial muscle of its controlling shareholders, who are also its promoters.

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CLIQ’s 20% majority shareholder Best Oracle Sdn Bhd is required by the Securities Commission Malaysia (SC) to hold on to its stake for another two years after the purchase of a QA. This means Best Oracle will have to fork out the required sum to subscribe for the rights issue or its shareholding will be diluted.

Best Oracle’s shareholders are managing director and CEO Ahmad Ziyad Elias and executive director and chief financial officer Kamarul Baharin Albakri.

If the majority shareholders do not have the resources to subscribe for the rights issue, they would then have to bring in new partners to pump in money. Investment banks or securities firms may not be willing to underwrite the rights issue if the controlling shareholders are not participating.

Sources say CLIQ is trying to borrow from banks to finance the QA but when contacted, Ziyad denies it. He tells The Edge that at the moment, the SPAC believes a rights issue is the best route for it and its shareholders as that will give them the “flexibility to manage Phystech’s assets on an unlevered basis”.

Of the RM210 million that CLIQ hopes to raise from the rights issue, some RM138.4 million is meant to meet the shortfall and the remaining RM65.8 million is for working capital.

A rights issue typically needs a simple majority of 50%. In the case of a SPAC, however, 75% acceptance is necessary. But none of that will matter if CLIQ is unable to obtain approval for the QA because the SC’s guidelines say it cannot make a cash call otherwise.

Given the current low crude oil prices and weak ringgit, does it make sense for the shareholders to approve the QA? The answer hinges on the potential returns, which many opine could be slim.

CLIQ has indicated that the rights issue will be at a minimum discount of 30% to the five-day volume weighted average price. For the risk-averse shareholder, the safest bet would be to vote against the QA and get back his entitlement to the funds kept in the trust account.

At 73 sen per share, dissenting shareholders would be looking at an upside of 8.15% compared with a base case of 67.5 sen (90% of 75 sen) as the funds in the trust account have been accumulating about 3% interest per annum for two years now. CLIQ’s share price closed at 68.5 sen last Friday.

But even if 24.5% (the maximum) of the shareholders voted against the QA, it will still be approved. This means CLIQ would theoretically have to pay out as much as RM84.7 million from the trust account, resulting in an even bigger shortfall in QA funds.

That said, even if the SPAC managed to implement the cash call, it may not be enough, says a fund manager who opines that CLIQ should renegotiate a lower purchase price because it would incur large capital expenditure to ramp up production after buying the asset.

So far, CLIQ has estimated capital expenditure and working capital of US$30 million (RM127 million) for the first year, of which 49% or US$15 million will be provided by Phystech.

Beyond that, CLIQ estimates over US$200 million is needed over a period of four years.

“Whether or not CLIQ is able to get a loan to fund the QA, it would still need a cash call or two. The shortfall is one concern, the other is the need to top up the trust fund. None of this takes into consideration the development expenditure that will come into the picture once they get the QA,” observes a banker.

Some fund managers feel the asset is overvalued at the current oil price of about US$45 a barrel. When the purchase price for the QA was fixed, the oil price assumption had ranged between US$70 and US$89 from 2015 to 2021, according to CLIQ’s announcement to Bursa Malaysia.

Given the current circumstances, the SPAC’s promoters would need to work harder before seeing any returns.

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